Book Review: The Financial Advisor M&A Guidebook

April 24, 2019, by Matt Sonnen
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PFI Advisors has written a lot around the operational side of M&A, and how important it is for firms to think through not only deal structure and valuation, but the planning process around integrating the two firms into one cohesive company once the deal closes.  As Chris Voss, former FBI hostage negotiator states in his amazing book on negotiation, “Never Split the Difference,” “Yes” is nothing without “How.”

While we are very proud of the articles and white papers we have published on this topic, we are excited to share that Greg Friedman and Shaun Kapusinski have done a much better job of detailing the necessary steps involved in integrating Buyer and Seller during an M&A transaction.  Their new book, The Financial Advisor M&A Guidebook – Best Practices, Tools, and Resources for Technology Integration and Beyond is absolutely phenomenal and is worth its weight in gold for RIAs looking to execute their first transaction, or improve their process from earlier acquisitions/mergers.

Chapter 1: Chief Components of M&A

Greg Friedman astutely states in the opening pages of the book, “On the surface, [technology] seems secondary to our relationships and our focus on our clients and people and what really matters.  But it is the central vehicle that we all use to accomplish our goals, stay competitive, and scale upward.”

As everyone can relate to, he also provides this counter-point, “Technology can also be an unwieldly adversary that causes more frustration than efficiency and a significant business cost if not given the appropriate amount of attention and time investment. Throw into that a second level of technology during a merger or acquisition, and you’re sitting on a ticking time bomb that could threaten to bring your newly established firm’s operations to a grinding halt.”

Therein lies the perfect setup for this book – ignore the “boring” technology/operational aspects of an M&A transaction at your own peril!

Greg and Shaun list 3 reasons technology is often overlooked in the realm of M&A transactions:

  1. We Take It for Granted – it’s always available, and it usually just “works”
  2. We Are in the Business of People First – our clients and employees are paramount; the technology is an afterthought
  3. Technology Growth is Organic – it’s never “done;” you are always growing with your technology, never reaching a significant endpoint

Chapter 2: Strategy

Greg states, “You need to get on the same page and become one firm – not just in name, but in philosophy, process, attitude, culture, and of course, technology systems.”

Shaun then takes a deeper dive into the role of Operations in the goal of integrating two firms into one.  He breaks his analysis into three high-level categories to focus on: People, Process, and Technology.

Greg interjects here, “There is no right or wrong way to structure your approach, only the opportunity to better understand how two firms can work together to achieve a shared goal.”

They both walk the reader through common pain points at this stage of the game, and stress that no two mergers will ever be the same, and you must expect to encounter some “wild cards” when laying out your strategy.

Chapter 3: Integration Timeline

The authors split the timeline into 4 high-level events:

  1. Initial Talks
  2. Letter of Intent
  3. Soft Close
  4. Hard Close

Greg wisely points out, “Your first year should be focused on alignment and building structure, which sets you up for the second year and profitability.”

Chapter 4: Technology Inventory

How do you assess which technology(ies) you want to move forward with?  Those leading the integration must determine what technology will be in place on Day 1, and which technologies will you allow to run in tandem until further analysis can be done around the people, process, and technology.

The authors recommend the following questions when assessing your own technology, as well as the legacy systems at the merging firm:

  • Is the current technology fitting the needs and goals of your business?
  • Does your technology serve the needs of your clients the way you want it to?
  • How well does your team utilize your existing tools?  Are they effective?
  • Are you monitoring business metrics to keep track of the efficiency of your business?

Shaun points out here that your assessment must go beyond the tech tools themselves – you need to evaluate each firm’s processes around the technology as well.  He also notes to examine what each system is capable of, not just what it is currently being used for.

Again, the authors identify several “wild cards” to look out for during the Inventory and Assessment phase.

Chapter 5: Implementation

Here the authors discuss general project management tips and the nuances of sticking to your timelines.  They identify two factors to consider when determining how fiercely you will hold onto your white boarded timelines:

  1. The natural rhythm of your business – you won’t want to tackle a massive integration project when your clients need you most, typically at tax time or year-end, for example
  2. You must determine exactly how much disruption to your normal course of business you are willing to accept at any given time

Greg states, “Taking these things as they come – you can only plan so much and there are always curve balls – your options as a leader are to decide how your timeline might move, the impacts on staff and clients, if more resources are needed, or if you need to consider an alternate route to implementation.”

The authors also point out, “Every M&A deal is different on so many levels that it will be difficult to create a formula for success.  What worked well last time might not apply the next time.  The size of the firm, the resources available, the type of technology used, and the details and structure of the deal itself all create a completely unique situation that can’t be replicated exactly.”

“What is consistent is that you know what areas you’ll be addressing.  From compliance to asset management to legal, marketing, operations, and wealth planning, there will always be the same key areas where you’ll need to perfect due diligence.”

Shaun then walks the reader through a best practices step-by-step analysis of systems integration, including when and how to involve vendors and custodians, how often your teams should meet, how to triage your various systems, hardware, and software for “Day 1 Functionality.”  In addition to these technologies, Shaun covers the importance of policies and procedures, and of course, cultural integration.

Shaun states, “The successful steps of integration start with the systems, lead to the procedures, and are topped off with culture.”

As in previous chapters, the authors cover some “wild cards” to look out for at this point.  Greg concludes the chapter with this recommendation: “[As a leader,] your goal [at this stage] is to listen, calm anxiety, put out fires, and offer resources to remove any obstacles that may pop up along the way.”

Chapter 6: Adoption

Greg states, “Technology may be an essential part of our business, but it is only truly effective if it is accepted and used consistently and systematically across the firm.”

The authors continue, “Our goal with adoption is to help you transition your new teammates from simply knowing about the systems, procedures, and technology – to being loyal to them.”

They contend that for this to happen, leadership at both firms must establish trust by over-communicating the “why” behind all the changes the staff is encountering, offering repeated training throughout the process, and finding “champions” throughout the organization to keep enthusiasm and energy high.

They round out the chapter with some real-life examples of integration successes and hurdles, the ever-present wild cards to look out for, and a fantastic list of Dos and Don’ts for firms to follow.

Chapter 7: Next Steps

Greg eloquently warns, “As you settle in to your new normal, be careful that you don’t settle!  The real work is just beginning.  This is the perfect time to realign and communicate – and communicate again – your firm’s strategic objectives and benchmarks for growth.”

Shaun then provides a fantastic list of Key Performance Indicators that every RIA should be tracking (with some help from Michael Kitces), and Greg provides some great due diligence questions for advisors to consider when evaluating new technology vendors.

Shaun rounds out the book with an interesting anecdote about “How M&A Tech Integrations Mirror Marathons.”

Our Conclusion

This book is not only informative with the wisdom both authors impart on the reader, but it is broken down into a very logical, easy-to-understand progression that takes you through the entire M&A integration process, all in less than 150 pages!  Many RIAs can muddle through an acquisition, but most declare at the end of the process, “We’ll never do that again!”  With this gift that Greg Friedman and Shaun Kapusinski have provided to the RIA industry, not only should the size of deals continue to rise in AUM and complexity, but the number of repeat-buyers should increase as well.

 

 

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